Research by YouGov and law firm Pinsent Masons suggests that high street lenders face a greater threat of losing customers to digital payment service provider PayPal, rather than new challenger banks or technology giants.
According to a Financial Times (FT) report, the research which was based on a survey of over 2,000 people in the UK shows that services such as PayPal and WePay are more likely to disrupt the banking sector than new lenders such as Virgin Money or Metro Bank.
Nearly a quarter of survey participants said that within two years they would be more likely to bank with an alternative digital payment service rather than a large bank. Only 13 per cent said they would consider moving to a new bank and only 5 per cent would choose to change to a technology company such as Facebook or Google.
According to the FT, The survey comes as people increasingly adopt mobile and online banking services and as more digital companies enter the payments sector. John Salmon (Head of Financial Services, Pinsent Masons) said that he thinks that people see digital payments providers as trustworthy because they are already proven in the payments space. Salmon also said: “Nobody can doubt that transitioning to a digital strategy is essential for any customer-facing bank given the potential for greater speed, reliability and security of payments and other services.”
Banks are increasingly implementing digital strategies to meet the requirements of their customers and recently both Barclays and Coutts (private banking service) announced plans for video-banking services which will enable customers to talk to advisers via their mobile rather than having to visit a branch.
Digital challenger banks, such as Atom Bank which launches next year, claims to be the UK’s first digital–only lender. The FT reports that Atom Bank has gained the backing of a number of high-profile investors such as Jim O’Neil (former chairman of Goldman Sachs Asset Management) and venture capitalist Jon Moulton, and has raised £25m of equity so far.
Large banks still face technology issues. Royal Bank of Scotland was fined £56m by regulators for their IT failure in 2012 when millions of customers could not access their account and most recently the Bank of England experienced a technical glitch which delayed thousands of mortgage payments.
Many banks view new challenger banks and technology companies such as Google as the biggest threats, however the survey results show that the majority of competition is coming from payment service providers rather than high streets brands. “Interestingly, the strongest challenge is coming not necessary from high street brands or technology companies outside of finance, but from payment service providers,” said Salmon.
By Nicole Miskelly, bobsguide Lead Journalist